Landmark Reform of Communications Laws OKd in House : Congress: Sweeping bill frees up competition in telephone, cable and broadcast industries, and mandates V-chip. Stage is set for political battle with Senate.

The House approved a landmark overhaul of the nation’s antiquated telecommunications laws Friday that would free up competition in the telephone, cable and broadcasting industries, as well as mandate a new technology allowing parents to block violent and sexual programming on their television sets.

The bill was approved by a hefty 305-117 margin after five hours of sometimes heated debate that resulted in substantial changes to the final bill, but leaving so many differences with the Senate version of the bill that a whole new political battle is looming over a compromise.

At stake is the blueprint for the future of the U.S. communications industry, breaking down the regulatory barriers that have kept telephone, cable and television as distinct industries under separate and limited ownership for four decades.

“Technology is so far ahead of regulators and courts that we can’t hold it back,” said Pacific Telesis Group Chairman Phillip J. Quigley. “If it finally becomes law, this legislation will cement the United States’ position as the acknowledged leader in the new age of global information.”

Under the sweeping House document that runs roughly 200 pages of fine print, the concentration of ownership of everything from radio stations to advertising billboards would begin to rise. Anticipation of the reform is a key ingredient in the multibillion-dollar wave of mergers sweeping through the broadcast industry, just one example of the profound economic effects of the legislation.

Supporters of the measure say the changes will eventually bring greater diversity to the entertainment and news market, as well as lower prices, but opponents castigate the bill for allowing major corporations to increase their power over both the content of what the American public consumes and the prices in the marketplace.

The winners Friday appeared to be local telephone companies and cable television providers, while the biggest losers were long-distance telephone companies. Major broadcasting corporations were bloodied in several key battles, but overall came out with the right to significantly increase their ownership concentration of the television market.

The bill’s key features would:

* Drop limits on the number of radio and television stations a single corporation could own and raise from 25% to 30% the share of the U.S. television audience those stations could reach. But broadcasters had hoped to get approval of a 50% television market share ownership. All limits on radio ownership would be dropped.

* Loosen cross-ownership restrictions, which since the 1950s have set limits on how many news media outlets a single company can control in one market. Under the proposed law, a single firm now could own a newspaper, two television stations and unlimited radio stations in the same market.

* Permit local telephone companies to offer long-distance service, opening up the $70-billion long-distance market to the Baby Bells and General Telephone & Electronics. Long-distance companies lost their effort to force the local carriers to prove conclusively that competition exists in their local service markets before entering the long-distance market.

* Encourage computer on-line services and the Internet to control pornography, but not allow the Federal Communications Commission to regulate content, as did the Senate. The provision, offered through an amendment by Rep. Christopher Cox (R-Newport Beach), passed by a near-unanimous margin.

* Drop federal price regulation of cable television rates, adopted in 1992 as cable rate increases became a national controversy, but leave intact local controls.

* Require the television industry to adopt a system, known as the V-chip, which would allow parents to block out objectionable television programs based on a rating issued by a government mandated panel.

The sweeping reforms are underpinned by new technologies that have rendered much of the nation’s existing telecommunications laws obsolete. The last major reform of the system occurred 60 years ago, when commercial radio was new and television was still in the laboratory.

Within hours of passage of the measure, known as the Communications Act of 1995, major corporations and consumer groups began waging a new battle to shape the final outcome of the reform measure, which will be hammered out next month in a conference committee.

President Clinton also called for major changes, declining to say whether he is willing to sign either the House or Senate versions. Earlier this week, Clinton vowed to veto the House bill as it then stood, but he said Friday that his signature depends on the final conference version.

The week leading up to the House vote was marked by one of the costliest and most rancorous lobbying battles in years, in which busloads of employees from major corporations were dropped off at Capitol Hill to lobby and House offices were flooded by tens of thousands of telegrams--at least some of them bogus.

Rep. Henry Bonilla (R-Tex.) received a telegram, for example, supporting the position of long-distance telephone carriers, sent over the name of Henry Bonilla. It was among many clearly fraudulent telegrams that carried the names of individuals who denied sending the telegrams or who are dead.

An AT&T; spokesman said in an interview that the company is looking into the matter, acknowledging that “obviously some mistakes were made.” The House is expected to open an investigation of the incident.

It was a bad day for AT&T; in other ways.

The House bill allows local telephone service providers, such as GTE and Pacific Telesis, to provide long-distance services in direct competition with AT&T;, MCI, Sprint and other long-distance carriers.

AT&T; had sought unsuccessfully for a provision in the bill that would have required the Department of Justice to review whether local telephone companies met all the conditions of a checklist that would open up local competition. As it was passed, the bill gives the FCC jurisdiction.

AT&T;, MCI and Sprint called the bill a disappointing setback, vowing to lobby for changes in the conference between House and Senate negotiators. But GTE and the Baby Bells hailed the House bill as ushering in a new era of competition. The bill will also allow the Baby Bells to offer cable video programming service through their existing network of wires.

But whether competition in fact leads to lower telephone rates for consumers rather than for business is unlikely, since in general Pacific Telesis and other local phone companies say that residential telephone service is subsidized by business users. Similarly, urban customers in Los Angeles County generally subsidize rural customers elsewhere in the state.

“There is a history of abuse by the Bells,” said Jeff Chester of the Center for Media Education, a consumer group. “Consumers will end up paying more.”

Added Debra Berlyn, director of the National Assn. of State Utility Consumer Advocates: “Congress heard the industry voices loud and clear, but not the consumers. Consumers can’t afford this bill.”

But Cox said he believes that local telephone costs should drop, particularly in Southern California where the dispersed urban development results in relatively high charges for so-called local long-distance calls.

“It is almost certain that rates will come down,” Cox said.

Under the bill, local telephone companies will resell a portion of their capacity to wholesalers, which would then market the service in retail competition. In addition, cable television companies will be freed to offer telephone service through their lines.

The bill also allows local phone companies to manufacture telecommunications equipment, another area from which they have been barred since they were created by the breakup of AT&T; more than a decade ago.

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Cable companies also won elimination of federal rate controls. House opponents contended it would cost $10 more per month for each of the 65% of American households getting cable. But the vote was carried by the argument that consumers have never had more video entertainment choices, including direct satellite broadcasts, videotape rental, commercial television and cable.

Among the most hotly debated issue Friday was the V-chip amendment, which was passed by a 224-199 margin. The V-chip is strongly supported by the President and was passed by the Senate. But its passage was a defeat for television broadcasters, who argued that the government should have no role in rating programming.

Rep. James P. Moran Jr. (D-Va.) asserted that 90% of parents support the V-chip system and asked in the House debate whether Congress “should enable television broadcasters to control the poison pumped into the minds of our children every day.”

But Rep. Dick Armey (R-Tex.) said most adults don’t even know how to program a videocassette recorder, much less a V-chip, and predicted, “I guarantee you that in 60% of the homes it will be the kids programming the V-chips.”

In broad terms, consumers are supposed to see more competition, but whether prices actually will drop for services ranging from long distance and local telephone to cable television was hotly contested Friday in the aftermath of the vote.

* BROAD IMPACT: What bill means for consumers, investors and industry. D1